The global economy is melting down. There is no sugar coating that. Catastrophic disruptions like the one coronavirus containment measures are visiting on industries, business and workers are already producing tremendous pain. It will likely get worse, along with the already devastating human toll.
But profound upheavals like the one we are experiencing now also create unprecedented opportunities to remedy distortions in the eco-economic system – imbalances that have fuelled rising wealth and income inequality.
There is an old saying in international economic circles: “Never let a good crisis go to waste.” It is a lesson businesses have mastered. Recent history is flush with examples of industries that have leveraged crises to privatise their profits and socialise their risks. Like the taxpayer-funded bank bailouts of 2008 – a crisis rooted in irresponsible bank lending and gambling with depositors’ money that fed a housing bubble which eventually exploded.
In the aftermath, banks were rescued. Their profits not only recovered, but soared, along with executive pay packages. Meanwhile, ordinary folks – the majority of hard-working taxpayers – got little to no relief. Many had homes foreclosed. Nearly all had their economic lives derailed in some way. Low wage earners were especially hard hit.
The crisis currently gripping us is different in shape and scope than 2008-2009. That was a credit crunch, triggered by a debt bomb that caused bank balance sheets to collapse, along with household fortunes. It took years to build up and years to unwind.
What we are experiencing now is a sharp and sudden shock, unprecedented in modern memory.
Economic activity has ground to a halt as borders shut, cities lock down, and people retreat behind closed doors to stem the spread of COVID-19. Workers are being laid off by the millions. Spending – the engine of the United States economy – the world’s largest and most systemically important – is collapsing.
No one really knows how bad it could get. Uncertainty surrounding the economic fallout of the pandemic has wiped more than a third from the value of the Dow and S&P 500 stock indexes since last month. Further falls are likely. Even old market hands are loath to call the bottom.
Each new piece of data – about the spread of the virus and the hit to business activity – has analysts revising their outlooks downward for global and US growth. Almost everyone thinks the US economy will contract sharply from April through June. Goldman Sachs sees a 24 percent dive from the same period a year ago. Morgan Stanley reckons it will be 30 percent. Those forecasts could easily change again.
US dollars and toilet paper
But that does not mean all policymakers are sitting on their hands. Central bankers around the world – led by the United States Federal Reserve – are bringing the moxie to keep the global financial system from going off the rails.
Right now, US dollars are to businesses what toilet paper is to households – something essential you do not want to run out of before the coronavirus storm passes.
Dollar hoarding has put tremendous strain on credit markets. To stop them from freezing up, central banks are pumping trillions of dollars into them. Many have slashed interest rates as well.
But central bankers cannot rescue the global economy alone. Governments need to step up, too. And in a really big way.
Some already have, with stimulus packages that put the well-being of workers front and centre.
German legislators fast-tracked measures to help keep firms afloat and pay employees who have had hours cut or been laid off. Denmark said it will cover 75 percent of employee salaries through early June. The British government has also pledged to foot the bill for workers’ salaries and bolster the income safety net for the self-employed.
Meanwhile, up on Capitol Hill, US lawmakers passed a $100bn coronavirus aid package last week that extended free testing for COVID-19 to all who need it, and enhanced food assistance, unemployment benefits, and paid sick and emergency leave for many American workers who do not already have it.
But US politicians are still horse-trading over an exponentially larger, $1 trillion-plus coronavirus aid bill for businesses and workers. Talks have hit partisan snags. Republicans accuse Democrats of unnecessary obstruction. Democrats say Republicans are prioritising Wall Street and corporate interests over average Americans.
Like crises past, big business is lining up for its share of the spoils. Trade groups representing manufacturers, airlines, restaurants, hotel chains, travel operators, coal mining firms and Tennessee whiskey makers are looking for rescue packages. So is aerospace giant Boeing, the native American gaming industry, and rail operator Amtrak.
Unlike bailouts past though, there are signs that this round could come with serious strings attached, like preventing firms that receive aid from letting workers go, or cutting their benefits.
Another much talked-about caveat would bar firms from using taxpayer funds to buy back their own stock – a practice that enriches shareholders and executives compensated in stock, but does nothing to boost productivity or drive innovation – the stuff that actually keeps economies competitive.
US lawmakers are also haggling over whether to make temporary direct cash payments to Americans. The goal is to help people who have been laid off pay for food, rent and other essentials. Cheques of $1,000 or more have been proposed.
Falling through the net
These measures are designed to keep the economy from collapsing. But they also expose some serious holes in the social safety net – holes that could imperil the wellbeing of workers and feed income inequality long after the coronavirus pandemic recedes.
Economists estimate some 20 million Americans still lack paid sick leave, despite the $100bn bill signed into law last week. Affordable health care is also out of reach for millions of Americans.
And it does not take a global pandemic to disrupt someone out of a job. The march of technology promises to boost productivity but displace millions of workers. If they lack the resources to retrain, and crucially – stay financially healthy while they do it – income inequality will likely worsen substantially.
Proponents of a Universal Basic Income – a permanent, recurring cash transfer from government to households – argue that it would ensure a minimum living standard while incentivising people to seek the training they need to find gainful employment.
Could cash transfers in response to coronavirus see the idea gain momentum?
It is tough to say. Right now, the priority is to contain the crisis at hand, curb the spread of COVID-19, save lives and save the US and global economies from collapsing. But when rulebooks are being thrown out, as they are now, opportunities are being created for bold, new initiatives to propel the economy towards a more equitable and just future.